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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 28, 1998
COMMISSION FILE NUMBER 0-20214
BED BATH & BEYOND INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-2250488
(State of incorporation) (I.R.S. Employer Identification No.)
650 LIBERTY AVENUE, UNION, NEW JERSEY 07083
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (908) 688-0888
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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NUMBER OF SHARES OUTSTANDING OF THE ISSUER'S COMMON STOCK:
CLASS OUTSTANDING AT NOVEMBER 28, 1998
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Common Stock - $0.01 par value 139,201,141 (gives effect to a
two-for-one stock split in the
form of a stock dividend
effected July 31, 1998)
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BED BATH & BEYOND INC. AND SUBSIDIARIES
INDEX
PAGE NO.
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PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets
November 28, 1998 and February 28, 1998 3
Consolidated Statements of Earnings
Three Months and Nine Months Ended
November 28, 1998 and November 29, 1997 4
Consolidated Statements of Cash Flows
Nine Months Ended November 28, 1998 and November 29, 1997 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 9
PART II - OTHER INFORMATION
Item 5. Other information 10
Item 6. Exhibits and Reports on Form 8-K 10
Exhibit Index 11
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BED BATH & BEYOND INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
November 28, February 28,
1998 1998
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(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 74,550 $ 53,280
Merchandise inventories 401,749 270,357
Prepaid expenses and other current assets 7,517 2,323
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Total current assets 483,816 325,960
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Property and equipment, net 137,251 111,381
Other assets 25,801 20,989
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$646,868 $458,330
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $163,354 $ 64,718
Accrued expenses and other current liabilities 85,197 73,610
Income taxes payable 9,820 12,015
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Total current liabilities 258,371 150,343
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Deferred rent 15,367 12,590
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Total liabilities 273,738 162,933
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Shareholders' equity:
Preferred stock - $0.01 par value; authorized -
1,000,000 shares; no shares issued or
outstanding -- --
Common stock - $0.01 par value; authorized -
350,000,000 shares; issued and
outstanding -November 28, 1998, 139,201,141 shares and
February 28, 1998, 138,087,946 shares 1,392 1,381
Additional paid-in capital 75,923 61,348
Retained earnings 295,815 232,668
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Total shareholders' equity 373,130 295,397
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$646,868 $458,330
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See accompanying Notes to Consolidated Financial Statements.
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BED BATH & BEYOND INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
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November 28, November 29, November 28, November 29,
1998 1997 1998 1997
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Net sales $ 363,431 $ 280,978 $ 977,948 $ 761,535
Cost of sales, including buying,
occupancy and indirect costs 214,958 165,556 577,353 449,255
------------ ------------ ------------ ------------
Gross profit 148,473 115,422 400,595 312,280
Selling, general and administrative expenses 108,319 84,696 297,937 233,974
------------ ------------ ------------ ------------
Operating profit 40,154 30,726 102,658 78,306
Interest income 761 714 2,149 1,855
------------ ------------ ------------ ------------
Earnings before provision for income taxes 40,915 31,440 104,807 80,161
Provision for income taxes 16,264 12,497 41,661 31,864
------------ ------------ ------------ ------------
Net earnings $ 24,651 $ 18,943 $ 63,146 $ 48,297
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Net earnings per share - Basic $ 0.18 $ 0.14 $ 0.46 $ 0.35
Net earnings per share - Diluted $ 0.17 $ 0.13 $ 0.44 $ 0.34
Weighted average shares outstanding - Basic 138,971,762 137,813,970 138,667,458 137,558,418
Weighted average shares outstanding - Diluted 143,079,852 142,473,058 142,921,542 142,036,003
See accompanying Notes to Consolidated Financial Statements.
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BED BATH & BEYOND INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
Nine Months Ended
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November 28, November 29,
1998 1997
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Cash Flows from Operating Activities:
Net earnings $ 63,146 $ 48,297
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 16,642 13,147
Deferred income taxes (3,533) (2,050)
Increase in assets:
Merchandise inventories (131,392) (116,736)
Prepaid expenses and other current assets (5,194) (672)
Other assets (1,279) (1,027)
Increase (decrease) in liabilities:
Accounts payable 98,636 68,885
Accrued expenses and other current liabilities 11,587 21,920
Income taxes payable (2,195) (4,425)
Deferred rent 2,777 2,627
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Net cash provided by operating activities 49,195 29,966
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Cash Flows from Investing Activities:
Capital expenditures (42,512) (34,206)
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Net cash used in investing activities (42,512) (34,206)
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Cash Flows from Financing Activities:
Proceeds from exercise of stock options 14,587 5,873
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Net cash provided by financing activities 14,587 5,873
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Net increase in cash and cash equivalents 21,270 1,633
Cash and cash equivalents:
Beginning of period 53,280 38,765
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End of period $ 74,550 $ 40,398
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See accompanying Notes to Consolidated Financial Statements.
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BED BATH & BEYOND INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
The accompanying consolidated financial statements, except for the February 28,
1998 consolidated balance sheet, have been prepared without audit. In the
opinion of Management, the accompanying consolidated financial statements
contain all adjustments (consisting of only normal recurring accruals) necessary
to present fairly the financial position of Bed Bath & Beyond Inc. and
subsidiaries (the "Company") as of November 28, 1998 and February 28, 1998 and
the results of their operations for the three months and nine months ended
November 28, 1998 and November 29, 1997, respectively, and their cash flows for
the nine months ended November 28, 1998 and November 29, 1997. Because of the
seasonality of the specialty retailing business, operating results of the
Company on a quarterly basis may not be indicative of operating results for the
full year.
The accompanying unaudited consolidated financial statements are presented in
accordance with the requirements for Form 10-Q and consequently do not include
all the disclosures normally required by generally accepted accounting
principles. Reference should be made to Bed Bath & Beyond Inc.'s Annual Report
for the fiscal year ended February 28, 1998 for additional disclosures,
including a summary of the Company's significant accounting policies.
2) STOCK SPLIT
In June 1998, the Board of Directors approved a two-for-one split of the
Company's common stock effected in the form of a stock dividend. The stock
dividend was distributed on July 31, 1998 to shareholders of record on July 10,
1998. Accordingly, all shareholders' equity, share and per share amounts for all
periods presented have been retroactively adjusted to give effect to the stock
split.
In June 1998, the Company's Certificate of Incorporation was amended to increase
the number of authorized shares of common stock (par value $.01 per share) from
150,000,000 shares to 350,000,000 shares.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months November 28, 1998 vs. Three Months November 29, 1997
Net sales for the third quarter ended November 28, 1998 were $363.4 million, an
increase of $82.5 million or approximately 29.3% over net sales of $281.0
million for the corresponding quarter last year. Approximately 73.6% of the
increase was attributable to new store net sales. The increase in comparable
store net sales in the third quarter of 1998 was approximately 8.8%. The
increase in comparable store net sales reflects a number of factors, including
but not limited to, the continued consumer acceptance of the Company's
merchandise offerings and customer service and the generally favorable retailing
environment. Approximately 55% and 45% of net sales for the third quarter were
attributable to sales of domestics merchandise and home furnishings merchandise,
respectively.
Gross profit for the third quarter of 1998 was $148.5 million or 40.9% of net
sales compared with $115.4 million or 41.1% of net sales during the third
quarter of 1997. The decrease in gross profit, as a percentage of net sales, was
primarily attributable to an increase in coupons redeemed associated with the
Company's marketing program.
Selling, general and administrative expenses ("SG&A") were $108.3 million in the
third quarter of 1998 compared with $84.7 million in the same quarter last year
and as a percentage of net sales were 29.8% and 30.1%, respectively. The
decrease in SG&A, as a percentage of net sales, primarily reflects a relative
decrease in payroll and payroll related items.
Operating profit in the third quarter of 1998 increased to $40.2 million from
$30.7 million in the third quarter of 1997, reflecting primarily the increase in
net sales and decrease in SG&A, which was partially offset by an increase in
costs of sales.
Nine Months November 28, 1998 vs. Nine Months November 29, 1997
Net sales for the nine months ended November 28, 1998 were $977.9 million, an
increase of $216.4 million or approximately 28.4% over net sales of $761.5
million for the corresponding period last year. Approximately 80.1% of the
increase was attributable to new store net sales. The increase in comparable
store net sales for the first nine months of 1998 was approximately 6.2%.
Gross profit for the first nine months of 1998 was $400.6 million or 41.0% of
net sales compared with $312.3 million or 41.0% of net sales during the same
period last year.
SG&A was $297.9 million in the first nine months of 1998 compared with $234.0
million for the same period last year and as a percentage of net sales were
30.5% and 30.7%, respectively. The decrease in SG&A, as a percentage of net
sales, primarily reflects a relative decrease in payroll and payroll related
items.
Operating profit in the first nine months of 1998 increased to $102.7 million
from $78.3 million for the same period last year, primarily resulting from the
increase in net sales and decrease in SG&A.
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EXPANSION PROGRAM
The Company is engaged in an ongoing expansion program involving the opening of
new stores in both existing and new markets and the expansion or replacement of
existing stores with larger stores. As a result of this program, the total
number of stores has increased to 185 stores at the end of the third quarter of
1998 compared with 141 stores at the end of the corresponding quarter last year.
Total square footage grew to 7,653,000 square feet at the end of the third
quarter of 1998, from 5,767,000 square feet at the end of the third quarter of
last year.
During the first nine months of fiscal 1998, the Company opened 44 new
superstores and expanded three stores resulting in an aggregate addition of
1,886,000 square feet to total store space. The Company anticipates opening one
new store during the remainder of fiscal 1998.
FINANCIAL CONDITION
Total assets at November 28, 1998 were $646.9 million compared with $458.3
million at February 28, 1998, an increase of $188.5 million. Of the total
increase, $157.9 million represented an increase in current assets and $30.7
million represented an increase in non-current assets. The increase in current
assets was primarily attributable to an increase in merchandise inventories,
which resulted from new store space.
Total liabilities at November 28, 1998 were $273.7 million compared with $162.9
million at February 28, 1998, an increase of $110.8 million. The increase was
primarily attributable to a $98.6 million increase in accounts payable
(resulting from an increase in inventories) and a $11.6 million increase in
accrued expenses and other current liabilities.
Shareholders' equity was $373.1 million at November 28, 1998 compared with
$295.4 million at February 28, 1998. The increase primarily reflects net
earnings for the first nine months of fiscal 1998 and additional paid-in capital
from the exercise of stock options.
Capital expenditures for the first nine months of fiscal 1998 were $42.5 million
compared with $34.2 million for the corresponding period last year. The increase
is primarily attributable to furniture and fixtures and leasehold improvements
for the 44 new superstores opened and three stores expanded during the first
nine months compared to furniture and fixtures and leasehold improvements for
the 33 new superstores opened and three stores expanded in the same period last
year.
YEAR 2000
During fiscal 1997, the Company conducted an extensive review of its computer
systems and operations to identify the areas that could be affected by the Year
2000 issue. A plan was developed which focuses on the Company's information
systems and third-party relationships.
With respect to its own information systems, the Company has adopted a
five-phase Year 2000 program consisting of: Phase I -- identification and
ranking of the components of the Company's systems that may be vulnerable to
Year 2000 problems; Phase II -- assessment of items identified in Phase I; Phase
III -- remediation or replacement of non-compliant systems and components; Phase
IV -- testing of systems and components following remediation; and Phase V --
developing contingency plans to address the most reasonably likely worst case
Year 2000 scenarios. The Company has completed Phases I, II, and III, has
substantially completed Phase IV, and is in the process of developing
contingency plans for Phase V.
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With respect to its third-party relationships, the Company contacted its largest
suppliers, vendors, and service providers to assess their state of Year 2000
readiness. This process is effectively complete and the Company is in the
process of contingency planning to address the most reasonably likely worst case
Year 2000 scenarios with respect to its third-party relationships, including
developing alternate third-party relationships, if necessary. Potential sources
of risk include the inability of principal suppliers to be Year 2000 compliant,
which could result in delays in product deliveries from such suppliers, and
disruption of the Company's distribution channel.
Based on the efforts to date, the Company does not believe that the Year 2000
issue will have a material adverse effect on its financial condition or results
of operations. The Company's costs incurred to date associated with the Year
2000 issue are not material. The Company estimates that the costs to complete
its five-phase program, excluding any costs that may be incurred by the Company
as a result of the failure of any third-parties to become Year 2000 compliant,
will also not be material. The Company believes that by the end of fiscal 1998,
it will have developed contingency plans to address its most reasonably likely
worst case Year 2000 scenarios.
FORWARD LOOKING STATEMENTS
This Form 10-Q may contain forward looking statements. Important factors which
may affect these statements are contained in the Company's Annual Report to
shareholders for the fiscal year ended February 28, 1998.
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PART II - OTHER INFORMATION
Item 5. Other Information
On December 17, 1998, the Board of Directors adopted amendments to the
Company's By-Laws, including amendments permissible as a result of recent
changes in the New York Business Corporation Law. The By-Law amendments, among
other changes, provide for shareholder meeting rules, and increase the minimum
number of days by which shareholders must give notice for business properly to
be brought before a shareholder meeting. The By-Laws of the Company, as
amended, are being filed as an exhibit to this Report.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits to this report are listed on the Exhibit Index included
elsewhere herein.
(b) No reports on Form 8-K were filed by the Company during the three month
period ended November 28, 1998.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BED BATH & BEYOND INC.
(Registrant)
Date: January 11, 1999 By: /s/ Ronald Curwin
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Ronald Curwin
Chief Financial Officer and Treasurer
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EXHIBIT INDEX
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Exhibit No. Exhibit Page No.
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3.1 Amended By-Laws of Bed Bath & Beyond Inc. 12-23
(As amended through December 17, 1998)
10.1 Fifth Amendment to the Credit Agreement 24-36
among the Company, bed 'n bath Stores, Inc.,
BBBL, Inc., Bed Bath & Beyond of California
Limited Liability Company, BBBY Management
Corporation and The Chase Manhattan Bank,
dated October 26, 1998
10.2 Second Amended and Restated Revolving Credit 37-38
Note among the Company, bed 'n bath Stores, Inc.,
BBBL, Inc., Bed Bath & Beyond of California
Limited Liability Company, BBBY Management
Corporation and The Chase Manhattan Bank,
dated October 26, 1998
27 Financial Data Schedule 39
(Filed electronically with SEC only)
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